Rio pays the price for China's industry order

By IBT Staff Reporter07/16/09 AT 6:25 PM

The detention of Rio Tinto executives on spying accusations has allegedly wreaked havoc on the world's second-largest iron ore miner's sales in China, as the nation's steel mills took a wait-and-see approach on ore imports from the Anglo- Australian conglomerate, Chinese State media reported on Wednesday.

A manager of a State-owned steel manufacturer in Shandong Province who refused to give his name said Rio's iron-ore sales network has been ruined as a result of the case, the National Business Daily newspaper reported.

We had a meeting Monday and eventually decided to suspend iron ore imports from Rio until an official outcome of the case, he said.

The case is definitely a huge blow to Rio, echoed a manager of a Hebei-based steal manufacturer, who also asked to remain anonymous.

The four staff from Rio had allegedly bribed officials from all 16 of the country's major steel mills and placed China in an unfavorable position in iron-ore price talks for the coming year, industry sources and domestic media said

The China Iron and Steel Association (CISA) has proposed to scrap all of the licenses held by trading companies as more steel mills are involved with Rio.

China's Ministry of Commerce, however, has turned down the proposal, ChinaDaily reported on Thursday, citing people familiar with the matter.

The ministry is reviewing iron ore import licenses but has not yet decided which trading companies' licenses should be canceled, the source said.

Some of the companies are likely to be terminated, the source added.

CISA started reducing iron ore import licenses in 2005. The number of steel mills and trading companies possessing licenses in China has been reduced from 500 to 112, of which trading companies' licenses are down from 250 to 40.

It's not reasonable to cancel all the trading firms' licenses, said the source. It cannot solve the root problem of the huge demand for iron ore in China.

Canceling import licenses held by trading companies won't help a lot to restore order in iron ore trading. How about other steel mills who also have import licenses? Nie Xiuxin, a senior steel analyst from Ping An Securities, asked.

MOFCOM spokesman Yao Jian said on Wednesday that negotiations between China's steel mills and foreign iron ore producers are continuing, adding that Hu's case will not harm Sino-Australian trade.

As far as we know, iron ore price talks are still going on, he said, adding China is seeking to gain an appropriate iron-ore price for the sake of national interests and its major importer status.

China also insists that the legal process will run its course to punish llegal behavior.

The Rio Tinto case is an individual judicial case, Qin Gang, a Chinese Foreign Ministry spokesman, said on Thursday. Lawful actions have been taken by relevant authorities against those in Rio Tinto for stealing state secrets and gravely impairing China's economic security and interests.

The ministry hoped the two sides would reach a balanced conclusion at an early date, Qin said.

Australian Prime Minister Kevin Rudd on Wednesday pressured China for the first time in Sydney, warning that China too has significant economic interests at stake in its relationship with Australia, and with its other commercial parties around the world.

Qi Xiangdong, deputy secretary-general of the Chinese Iron and Steel Association, said he had no idea about the results of the negotiations.

Some of the nation's largest mills have accepted a provisional 33% price cut offered by Rio, Shanghai-based analyst Hu Kai was quoted as saying, declining to identify the steelmakers. He said there may be no official announcement about the price agreement.

Rio is unlikely to budge on the price cuts because of the arrests (of its employees), as it wouldn't be consistent with its business practices, Shanghai-based analyst Hu Kai said. The talks may end quietly as steel makers accept the 33% as a provisional cut.